EUR/USD Forecast Feb. 2-6

EUR/USD  managed to stabilize after the Greek elections in the last week of a turbulent month. Has it bottomed out or is gravity here to pull it lower? PMI figures are the highlights of the first week of February.  Here is an outlook for  the highlights of this week and an updated technical analysis for EUR/USD.

Anti-austerity SYRIZA swept into power in Greece: while the bank stocks in Athens are suffering, the euro managed to bounce back quite quickly.  An advance in German employment and business confidence together with good figures from Spain supported the common currency. However, deflation is deeper than expected, justifying the big QE move, and this includes Germany that opposed the move. In the US,  the Fed made little changes in its statement, but did  marginally upgrade the wording regarding the economy and job market. Data was mixed with disappointing  durable,    good jobless claims  and a slightly disappointing GDP number.  What’s next? Let’s start:

EUR/USD daily chart  with support and resistance lines on it. Click to enlarge:

1. Spanish Unemployment Change: Monday, 8:00. The euro-zone’s fourth largest economy suffers from high unemployment, even though it is falling. After a drop of 64.4K jobless in December, a smaller drop  is expected for January: 32.4K.
2. Manufacturing PMIs: Monday: Spain at 8:15, Italy at 8:45 and the final manufacturing PMI for the euro-zone at 9:00.  According to Markit, Spain enjoyed growth in December with a score of 53.8 points in December and is now expected to print 54.2. Italy’s score was below this number, with 48.4 points and now carried estimations for 49.3The preliminary manufacturing PMI for the whole euro-zone in  January stood on 51, reflecting minimal growth. This number will probably be confirmed now.
3. PPI: Tuesday, 10:00.  Producer prices dropped by 0.3% in  November for a second month in a row. This is another measure of inflation. Another drop is likely for December and it might be more than double: -0.7% is on the cards. Note that Italy releases the CPI data at the same time and prices likely to fall.
4. Services PMIs: Wednesday: Spain at 8:!5, Italy at 8:45 and the final euro-zone number at 9:00. Similar to manufacturing, also here Spain enjoyed growth in  December with 54.3 (54.5 predicted now) while Italy was just below the 50 point mark separating growth from contraction, with 49.4 points (expected to edge up to 49.9 points). The  initial euro-zone manufacturing PMI for  January stood on 52.3 points, and this will likely be confirmed now.
5. Retail Sales: Wednesday, 10:00. After Germany reported slower than  expected growth in retail sales for December, only 0.2%, expectations are also lower for the all euro-zone number: a drop of 0.1%.
6. German Factory Orders: Thursday, 7:00.  The German locomotive is not always at full steam. In November, orders at the factory level dropped by 2.4%, much  worse than  expected. A rebound is likely this time in this volatile figure.  A  small tick up is expected to follow: 1.4%.
7. Retail PMI: Thursday, 9:10. The purchasing managers’ index from Markit has shown ongoing contraction. The survey of  some 1000 PMs in the continent’s  biggest countries slid to 47.6 points in December. A similar number is likely now.
8. German Industrial Production: Friday, 7:00.  Complementing the factory orders number, this figure provides a  less volatile reading. A  disappointing drop of 0.1% was recorded in November and a rise of 0.4% is expected now.
9. French Trade Balance: Friday, 7:45. The euro-zone’s second largest economy saw a smaller than expected trade deficit at 3.2 billion euros. Another squeeze is on the cards for December: 3.1 billion.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar began the week with a drop just below 1.11 but a significant rebound followed. The pair initially paused at 1.1290 (mentioned last week). It then advanced and  became comfortable in range under 1.1373.

Live chart of EUR/USD: [do action=”tradingviews” pair=”EURUSD” interval=”60″/]

Technical lines from top to bottom:

The post crisis low of 1.1867, should be watched.  1.1750 was a low point the pair reached in a breakdown in early January 2015. The round number of  1.17 was the launch value of the pair in 1999 and has a symbolic meaning.

Below, we have the post Swiss bounce of 1.1650 which worked as resistance. Lower,  1.1540 provided support in mid January.

Below the round number of 1.15 we have  the pre-QE low of  1.1460  that could work as resistance.

1.1373 was the low line seen in November 2003 and proved to work as resistance lately. Below the initial low point of 1.1313 we have 1.1290 which was the post collapse recovery limit.

The round number of 1.12 is now the pivotal line in the range. It is followed by the fresh low of 1.1113 which is nearly 0.90 on USD/EUR.

The next line is the round  1.10. It is followed by 1.0760, which was the low point in both July and August 2003.

Below this point we have the round numbers of 1.05 and 1 – EUR/USD parity, which is already eyed by some analysts.

Downtrend resistance and uptrend support

As the thick black lines on the charts show,  steep downtrend  resistance since early December, while uptrend support is emerging in the last week of January. How will the pair get out of this wedge?

I am neutral  on  EUR/USD

While the general trend remains down and the pair has more room before bottoming out (with some talking about parity or below), the US could continue with its break in rises. The confident Fed was countered by a mediocre GDP number. In the euro-zone, the deflation deepens and when it also hits Germany, this just justifies the massive QE move by Draghi and the  general pressure on the common currency.

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Further reading:

• For a broad view of all the week’s major events worldwide, read the  USD outlook.
• For the Japanese yen, read the  USD/JPY forecast.
• For GBP/USD (cable), look into the  British Pound forecast.
• For the Australian dollar (Aussie), check out the  AUD to USD forecast.
• USD/CAD (loonie), check out the  Canadian dollar forecast
• For the kiwi, see the  NZDUSD forecast.